Historical Development

Before South Africa's vast mineral wealth was discovered in the late
nineteenth century, there was a general belief that southern Africa was
almost devoid of the riches that had drawn Europeans to the rest of the
continent. South Africa had no known gold deposits such as those the
Portuguese had sought in West Africa in the fifteenth century. The
region did not attract many slave traders, in part because local
populations were sparsely settled. Valuable crops such as palm oil,
rubber, and cocoa, which were found elsewhere on the continent, were
absent. Although the local economy was rich in some areas--based on
mixed farming and herding--only ivory was traded to any extent. Most
local products were not sought for large-scale consumption in Europe.

Instead, Europeans first settled southern Africa to resupply their
trading expeditions bound for other parts of the world (see Origins of
Settlement, ch. 1). In 1652 the Dutch East India Company settled a few
employees at a small fort at present-day Cape Town and ordered them to
provide fresh food for the company's ships that rounded the Cape on
their way to East Africa and Asia. This nucleus of European settlement
quickly spread outward from the fort, first to trade with the local
Khoikhoi hunting populations and later to seize their land for European
farmers. Smallpox epidemics swept the area in the late eighteenth
century, and Europeans who had come to rely on Khoikhoi labor enslaved
many of the survivors of the epidemics.

By the early nineteenth century, when the Cape settlement came under
British rule, 26,000 Dutch farmers had settled the area from
Stellenbosch to the Great Fish River (see fig. 7). In 1820 the British
government sponsored 5,000 more settlers who also established large
cattle ranches, relying on African labor. But the European immigrants,
like earlier arrivals in the area, engaged primarily in subsistence
farming and produced little for export.

The discovery of diamonds in 1869 and of gold in 1886 revolutionized
the economy. European investment flowed in; by the end of the nineteenth
century, it was equivalent to all European investment in the rest of
Africa. International banks and private lenders increased cash and
credit available to local farmers, miners, and prospectors, and they, in
turn, placed growing demands for land and labor on the local African
populations. The Europeans resorted to violence to defend their economic
interests, sometimes clashing with those who refused to relinquish their
freedom or their land. Eventually, as the best land became scarce,
groups of settlers clashed with one another, and rival Dutch and British
populations fought for control over the land (see Industrialization and
Imperialism, 1870-1910, ch. 1).

South Africa was drawn into the international economy through its
exports, primarily diamonds and gold, and through its own increasing
demand for a variety of agricultural imports. The cycle of economic
growth was stimulated by the continual expansion of the mining industry,
and with newfound wealth, consumer demand fueled higher levels of trade.

In the first half of the twentieth century, government economic
policies were designed to meet local consumer demand and to reduce the
nation's reliance on its mining sector by providing incentives for
farming and for establishing manufacturing enterprises. But the
government also saw its role as helping to defend white farmers and
businessmen from African competition. In 1913 the Natives Land Act
reserved most of the land for white ownership, forcing many black
farmers to work as wage laborers on land they had previously owned. When
the act was amended in 1936, black land ownership was restricted to 13
percent of the country, much of it heavily eroded.

White farmers received other privileges, such as loans from a
government Land Bank (created in 1912), labor law protection, and crop
subsidies. Marketing boards, which were established to stabilize
production of many crops, paid more for produce from white farmers than
for produce from black farmers. All farm activity suffered from the
cyclical droughts that swept the subcontinent, but white farmers
received greater government protection against economic losses.

During the 1920s, to encourage the fledgling manufacturing
industries, the government established state corporations to provide
inexpensive electricity and steel for industrial use, and it imposed
import tariffs to protect local manufacturers. Again black entrepreneurs
were discouraged, and new laws limited the rights of black workers,
creating a large pool of low-cost industrial labor. By the end of the
1930s, the growing number of state-owned enterprises dominated the
manufacturing sector, and black entrepreneurs continued to be pressured
to remain outside the formal economy.

Manufacturing experienced new growth during and after World War II.
Many of the conditions necessary for economic expansion had been present
before the war--cities were growing, agriculture was being consolidated
into large farms with greater emphasis on commercial production, and
mine owners and shareholders had begun to diversify their investments
into other sectors. As the war ended, local consumer demand rose to new
highs, and with strong government support--and international competitors
at bay--local agriculture and manufacturing began to expand.

The government increased its role in the economy, especially in
manufacturing, during the 1950s and the 1960s. It also initiated
large-scale programs to promote the commercial cultivation of corn and
wheat. Government investments through the state-owned Industrial
Development Corporation (IDC) helped to establish local textile and pulp
and paper industries, as well as state corporations to produce
fertilizers, chemicals, oil, and armaments. Both manufacturing and
agricultural production expanded rapidly, and by 1970 manufacturing
output exceeded that of mining.

Despite the appearance of self-sustaining economic growth during the
postwar period, the country's economy continued to be susceptible to its
historical limitations: recurrent drought, overreliance on gold exports,
and the costs and consequences of the use of disenfranchised labor.
While commercial agriculture developed into an important source of
export revenue, production plummeted during two major droughts, from
1960 to 1966 and from 1981 to 1985. Gold continued to be the most
important export and revenue earner; yet, as the price of gold
fluctuated, especially during the 1980s, South Africa's exchange rate
and ability to import goods suffered.

Manufacturing, in particular, was seriously affected by downswings in
the price of gold, in part because it relied on imported machinery and
capital. Some capital-intensive industries were able to expand, but only
with massive foreign loans. As a result, many industries were insulated
from the rising labor militancy, especially among black workers, which
sparked disputes and slowed productivity in the late 1980s. As black
labor increasingly voiced its frustrations, and foreign banks cut short
their loans because of mounting instability, even capital-intensive
industries felt the impact of apartheid on profits.

The economy was in recession from March 1989 through most of 1993,
largely in response to worldwide economic conditions and the long-term
effects of apartheid. It registered only negligible, or negative, growth
in most quarters. High inflation had become chronic, driving up costs in
all sectors. Living standards of the majority of black citizens either
fell or remained dangerously low, while those of many whites also began
to decline. Economic growth continued to depend on decent world prices
for gold and on the availability of foreign loans. Even as some sectors
of the economy began to recover in late 1993, intense violence and
political uncertainty in the face of reform slowed overall growth
through 1994.